Jacksonville-area bankers pledge to work with customers

What happened in the region reflects hit to "mainstream America."

The 2008 financial crisis had a silent component lurking in Jacksonville-based banks months before the Wall Street meltdown.

Between the first quarter of 2008 and the first quarter of this year, soured loans held by Jacksonville's 17 locally based banks increased by an average of 163 percent, according to filings with the Federal Deposit Insurance Corp.

Presidents, CEOs and CFOs of 10 of those banks contacted by the Times-Union said the sharp increases in bad loans, known in FDIC reporting as "noncurrent," didn't come from the failed unconventional loans that tore through Wall Street. Instead, they're tied to the fortunes of local businesses that have been negatively affected by the downturn in real estate sales and values, they say.

"What we have seen in the last 12 months is the downturn in the economy hitting mainstream America," said Mike Killingsworth, president and CEO of First Bank of Jacksonville. "It hit the repayment ability of people who are normally very solid."

The amounts represented in the bank's loans that were classified as noncurrent as of March represented 88.7 percent of the bank's capital, according to its FDIC filing.

Jay Fant is CEO and chairman of First Guaranty Bank and Trust Co., which carries a ratio of noncurrent loans to bank capital of 88.8 percent. That means if the bank were forced to write off all of its noncurrent loans, the loss could consume 88.8 percent of its total capital.

Fant said most of those loans are mom-and-pop business loans, and the percentage of noncurrent loans reflects the fact that the bank is working with its borrowers. He explained that the bank's staff is focused on not worrying about noncurrent loans so it can help those customers stay in business.

"We are intentionally sacrificing current earnings to the long-term success of our borrowers. That benefits us," Fant said. "This is a long-term game, and people will remember 20 years from now what we do now."

The bank's capital and liquidity are strong, he said, and its management intends to see through the downturn with its lenders, Fant said.

Mike Sanchez, president and CEO of CBC National Bank, which in Nassau County uses the name First National Bank of Nassau County, said the jump in loans slipping into arrears was a surprise because local bankers watching bad loan fallout in regions harder hit by the real estate turndown didn't expect such acute banking effects here.

"All through the Florida and Atlanta banks' problems in 2007 and 2008, we thought we were bulletproof," he said.

Mike Kearney, chief financial officer of Heritage Bank of North Florida, would not discuss the types of loans the bank holds. About 82.5 percent of its loans, as compared to capital, are 90 days late or more, according to the FDIC, but that represents only an 8 percent increase from March 2008.

"As a community bank, our loan portfolio reflects the communities we serve. Thus the increase in NPLs [nonperforming loans] is a reflection of the economic downturn, which has negatively impacted families and businesses in the Jacksonville metropolitan area," he said.

Not all local banks saw such large percentages of nonperforming loans as compared to their capital. Synovus Bank of Jacksonville's is at 12.9 percent, below the national average.

"Our parent [Synovus Capital] gets a lot of credit," said Bill Hammel, chairman and CEO of Synovus Bank of Jacksonville. "We are probably more aggressive than other banks in recognizing assets that are stressed."

Mitchell Hunt is president and CEO of FirstAtlantic Bank, which reported the lowest ratio of noncurrent loans to its capital, at 2.17 percent. He said that's largely attributable to the fact that the bank opened in September 2007 - well after it became clear the economy was taking a turn for the worse. The bank has had only one nonperforming loan, he said.

Most of the bank officials interviewed said the fate of the state's real estate industry has played a heavy hand in the health of their real estate loans.

"Most of the banks like us in this area are real estate lenders, period," said Barry W. Chandler, president and CEO of Oceanside Bank. "We have not been immune to these troubled times as one of our local economic drivers, the real estate industry, has felt the brunt of this crisis."

Charles Hughes, president and CEO of Florida Capital Bank, said the majority of that bank's bad loans are real estate-related.

"As we say, they're out of gas," Hughes said. "There is an incredible amount of slowness these days."

"All you have to do is drive through neighborhoods, and you can tell real estate markets have been affected. It's the same in commercial real estate," said Gilbert J. Pomar III, president and CEO of The Jacksonville Bank.

"The problem with these is they tend to be larger loans," said Matt Greene, president and CEO of Haven Trust Bank Florida. "It's going to eat up our capital. That's the bad thing. It makes it more difficult for us to lend money back into the market again."

Bank representatives interviewed said their banks are dealing with bad loans by buttressing themselves with more capitalization or already have enough capital to ride out the storm. Several of the bank officials said they think the number of loans going bad is declining.

"It feels like we're getting through this thing now," Killingsworth said. "But it was a big shock to us in 2008."